The European Commission today pledged to support efforts to differentiate between “high quality” securitization and lesser quality transactions.
The EC wants to help revive securitization as part of a broader effort to improve access to funding for smaller companies as the region’s banks reign in lending in order to preserve capital.
The Commission said it would explore “possible preferential regulatory treatment compatible with prudential principles,” for higher-quality deals. In doing so, it will take into account “possible future increases in the liquidity of a number of securitization products following further differentiation and standardization.”
Prime Collateralized Securities (PCS), a European securitization trade group, welcomed the statement. PCS awards a label to European securities that comply with eligibility criteria that are indicative of simplicity, asset quality and transparency and reflect the best practices available in the European securitization market.
The PCS label focuses on securitizations that fund the real economy and have characteristics compatible with good liquidity. As of this month, it has awarded 47 labels to high quality securitizations, totaling over 83.5 billion ($115 billion) in issuance.
Differentiating between high quality structures and lower quality structures that do not meet the PCS eligibility criteria, “would balance the important prudential requirements with the benefits to the real economy that high quality securitization can provide,” the PCS stated in a press release.
“By supporting the crafting of a definition of high quality’ securitization and its harmonized use across all the relevant regulations in a way that reflects the very good performance of these financing instruments in the crisis, the [European] Commission is leading the way in providing the conditions for a strong and safe securitization market able to fund the growth of the European economy, and particularly its small and medium business sectors,” Ian Bell, head of the PCS Secretariat, stated in the press release.
The EC’s pledge is part of a package of measures unveiled today to bolster long-term funding for businesses and infrastructure projects. The measures include guidelines on regulation of crowd-funding websites and a draft law to overhaul EU rules for company pensions, among others.
Approximately 80 billion of investor placed securitization volume is expected for 2014, according to Deutsche Bank. Last year, the market printed 75 billion in investor placed supply, according to Deutsche Bank; a large drop from the market’s peak of 711 billion in 2008, according to figures report by the Association for Financial Markets in Europe.